Don't spend that healthcare rebate check yet!

Healthcare law places requirements on the use of Medical Loss Ratio rebates


If your company maintains a group health plan for your employees, you may have received a "rebate" check from your health care insurer.  It’s not a reduction in your rates or a rebate and it’s not being sent because your insurer wants to keep your business. 

It’s your 85/15 Rule Rebate.  

Your insurer is required by the Patient Protection and Affordable Care Act to send it to you.  And you can’t just deposit the check back in your company’s general account. 

The Medical Loss Ratio (MLR) of the Affordable Care Act sets a 15 percent threshold for insurers in the large group market (serving companies with 50 employees or more) and a 20 percent threshold for insurers in the individual and small group market (serving companies with less than 50 employees).  The threshold applies to the amount of health care premium dollars that can be spent on administrative costs (salaries, sales and advertising).  Under the so-called "85/15 Rule," a health care insurer that spends less than 85 percent of the health care premium dollars it collects to provide medical care (on doctors and hospital bills, as well as on programs designed to improve health care quality, such as patient safety), must rebate the percentage difference between what it actually spent and 85 percent or apply the difference to the employer’s health care insurance premiums due after that date.  (The number is 80 percent for small group markets.)  Insurers have to send a MLR notice and any rebate check to covered employers by August 1, 2012, or insurers must apply the rebate amount to the employers’ health care insurance premiums due on or after that date. 

The Medical Loss Ratio applies on a state-by-state basis – not on a national or individual insured basis. For example, if your company is located in Florida and your insurer doesn’t meet its required Medical Loss Ratio in that state, you should receive a Medical Loss Ratio Notice from your insurer, detailing its MLR performance and the rebate (or premium reduction) you can expect. 

If your company receives an MLR rebate check, you may use the money to pay future health care premiums for your plan or share the rebate with your covered employees.  If you use the rebate to pay future premiums, your payment must be allocated to reduce both the premiums you pay and your employees’ premium contribution, based on the ratio of the premium amounts you pay and your employees pay as a group.  (Your company can also spend the rebate it in other ways related to health care that benefits employees, such as lowering co-pays or revising cost-sharing to cut employee costs).  If you don’t use the rebate to reduce future premiums (or for the benefit of your employees), you must share the funds with participating employees on the same basis. 

Some restrictions and conditions apply to the MLR. For example, your company’s medical plan must be fully funded, not self-insured, and different rules apply to plans funded by trusts.  How your company uses its MLR rebate may also have tax implications. If your employees make their premium contributions with pre-tax dollars (through a cafeteria plan election, for example) or if they claim a federal income tax deduction for their premium payments, their potion of the rebate is taxable compensation.

However your company decides to use any 85/15 Rule rebate, you should let your participating employees know – promptly and in writing – if you receive an MLR Notice, and whether your insurer has reduced future premiums or issued a rebate.  If your company receives a rebate check you must also let covered employees know what your company intends to do with it and the effect it will have on them.